Primary functions of commercial banks in money lending : Money deposited by the customers in the banks is disbursed to the needy persons for productive purposes. This function is very important because the economic development of the country mainly depends on the credit schemes of banks. Banks lend money in different forms.
The most popular forms of lending are : Overdraft An overdraft is an arrangement by which the customer is permitted to draw money over and above the credit balance in his account. The customers have to pay interest for the overdrawn amount.
Cash Credit
Cash credit is a short-term credit given to the businessmen for meeting their working capital requirements. It is normally made against certain security. The banker opens the cash credit account in the name of the borrower and permits him to withdraw money from time to time up to a certain limit fixed by the value of stocks available in the business premises of the borrower. The borrower withdraws money from the cash credit account as per his requirements. Interest is charged only on the amount actually withdrawn by the account holders from the account. This type of loan is very popular among businessmen in India.
Loans and Advances
These are direct loans given to all type of customers. These loans are given against the security of the movable and immovable properties. The amount of loan is paid as cash, or customer’s account is credited with it so that he can withdraw the amount from his account at any time.
